CtC Intro

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Was Grandpa Really a Moron?

from


Critical Inquiries for a New American Century

by

Peter E. Hendrickson

A Brief Introduction To The Fascinating Truth About The

Income Tax

PART ONE

The purpose of this brief study is to introduce a couple of key

facts that must be known by anyone hoping for a clear

understanding of the legal character of the United States federal

income tax (and the state and local impositions of the same

tax). Were going to start by:

1. Examining the meaning of the Constitutional termcapitation (a tax effectively falling on revenue

generally-- that is, a tax on what comes in either in

its entirety, or on any part, of otherwise undistinguished

revenue); and

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2. Establishing that the income tax is, and always has

been, an exercise-of-privilege-based piece of the

action excise tax on distinguished activity, rather than

a capitation, and that income as meant in the context

of the tax refers only to that distinguished activity (the

amount of which is measured by the dollar value it

produces).

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A Brief Introduction To The Fascinating Truth About The Income Tax

The Meaning of Capitation

There is a persistent misunderstanding in America about

the meaning of one of the key terms in our own federalConstitution. That term is "capitation", and it is the sole

specifically-listed type of direct tax in the Constitution.

Its a funny thing that this term should be so poorly

understood, and has seen little effort in the past to discern its

meaning. Under the utterly explicit and still-controlling

prescription of the Constitution, anything which qualifies as a

capitation is subject to the rule of apportionment (by which thetotal to be collected with each imposition of the tax is divided

among the states in proportion to their shares of the national

population, and is then collected and remitted by the state

governments). The reciprocal of this, of course, is that in order

for the income tax we know and love (or any other tax, for that

matter) to be administered WITHOUT apportionment, and yet

still be valid, it CANNOT be a capitation. Before we discusswhat the tax IS then, lets have a close look at what it CANNOT

be...

CAPITATION A poll tax; an imposition which is yearlylaid on each person according to his estate and ability.2. The Constitution of the United States providesthat no capitation, or other direct tax, shall be

laid, unless in proportion to the census, orenumeration, therein before directed to betaken. Art. 1, s. 9, n. 4. See 3 Dall. 171; 5 Wheat317. Bouviers Law Dictionary, 6th Ed. (1856).(Emphasis added.)

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In a way, this simple definition from what was, in its

time, the Congressional law dictionary of record more-or-less

tells us all that we need to know. A capitation is an annualimposition on each person measured by his estate and ability.

Some may split hairs on the meaning of estate, but ability

pretty clearly refers to ability to pay, and that pretty clearly

means revenue. On the other hand, the reference to a poll

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tax leads to some confusion as well, especially when more

modern references are relied upon.

For instance, the entire definition of capitation offered

by Blacks Law Dictionary (fifth edition) is as follows:Capitation tax.A poll tax (q.v. . A tax or impositionupon the person. It is a very ancient kind of tribute,and answers to what the Latins called tributum, bywhich taxes on persons are distinguished from taxes onmerchandise, called vectigalia.

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Not very illuminating.

Turning to the definition of "poll tax" in the same

collection, we find:

Poll-tax. A capitation tax; a tax of a specific sumlevied upon each person within the jurisdiction of thetaxing power and within a certain class (as all males ofa certain age etc ) without reference to his property or

lack of it.

Poll taxes as a prerequisite to voting in federal electionsare prohibited by the 24th Amendment and as to stateelections such were held to be unconsti utional inHarper v Virginia Bd. of Elections, 383 U.S. 663, 86 S.Ct. 1079, 16 L.Ed2d 169.

If one makes no further study of this subject, and relies onBlack's definitions, one would conclude that a "capitation" is just

a poll tax (that is, a head tax), and might even confuse it

with a "voting tax"-- that is, a tax taken at the polling place

before the right to vote can be exercised.

However, Blacks definitions are woefully incomplete

and misleading. A capitation is NOT simply a "poll tax", and a

"poll tax" is not a "voting tax" (as is self-evident when theConstitutions apportionment clause is considered, since

apportionment cant apply to a voting tax, and is superfluous

in regard to head tax). Nonetheless, since most have never

made a study of this subject, sloppy presentations in prominent

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sources such as Blacks have muddied the subject enough to

make "capitation" a cognitive 'hiccup' term. Far too many who

encounter the term, even while poring over the language of our

fundamental law, simply skim past with no registration of itsmeaning or import.

So, just to clear up (or forestall) such confusion, lets

examine the relevant observations of a couple of fellows who

were inarguably in a position to know what they were talking

about. We'll start with Alexander Hamilton, one of the chief

authors of the Constitution itself, who discussed direct and

indirect taxes in the first tax case argued before the United

States Supreme Court, observing that:

The following are presumed to be the only direct taxes.Capitation or poll taxes. Taxes on lands and buildings.General assessments, whether on the whole property ofindividuals, or on their whole real or personal estate; allelse must of necessity be considered as indirect taxes.

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In addition to his inclusion of general assessments on personal

estates as being in the class of direct taxes, note also that

Hamilton does NOT characterize poll tax as just an alternative

name for capitation; more important still, as will become

clearer in a moment, he specifically declares poll taxes to also

be among the direct taxes subject to the apportionment rule.

Now lets turn to the singular expert on this subject, and

the one whose work guided the framers in their use of terms in

the taxing clauses, Adam Smith, author of The Wealth Of

Nations, perhaps the most important work ever written about

economics and taxation:

The taxes which, it is intended, should fall indifferently

upon every different species of revenue, are capitationtaxes, Capitation taxes, if it is attempted to

proportion them to the fortune or revenue of eachcontributor, become altogether arbitrary The s ate of aman's fortune varies from day to day and without aninquisition more intolerable than any tax, and renewed

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at least once every year, can only be guessedat.Capitation taxes, so far as they are levied uponthe lower ranks of people, are direct taxes upon thewages of labour, and are attended with all theinconveniences of such taxes. In the capitationwhich has been levied in France without anyinterruption since the beginning of the present cen u y,the highest orders of people are rated according to theirrank by an invariable tariff; the lower orders of people,according to what is supposed to be their fortune, by anassessment which varies from year to year. (Bear inmind that Smith is using the common word 'wages', not

the custom-defined legal term of the same spellingfound in the modern revenue laws.)

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Smith goes on to discuss the version of capitations imposed

under the name of poll taxes, as well, observing that in the

first poll tax, for instance, many were taxed according to their

supposed fortune, being assessed at three shillings in the

pound of their supposed income.Clearly, a general, indiscriminate tax on income read as

all that comes in, or on every species of revenue, qualifies as

either a capitation or a poll tax (or both) as each term is

properly understood. Consequently, we know that any such tax

must, under the provisions of the Constitution, be administered

exclusively by the rule of apportionment.

Ill close this introductory discussion of capitations

with the acknowledgment by the United States Supreme Court,

in the case of Pollock v. Farmers Loan & Trust, 157 U.S. 429

(1895), that the understanding of the term that I have

presented here is precisely the one which informed the Framers

of the Constitution when choosing the wording capitations and

other direct taxes in laying down the rule of apportionment.

Declaring the meaning of the phrase capitations and other

direct taxes in its ruling in the case, the court resorts to the

authority of Albert Gallatin, Pennsylvania state congressman,

United States Representative and Senator, United States

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Minister to England and France, respectively, and the longest

serving Secretary of the Treasury in American history, and says:

...Albert Gallatin, in his Sketch of the Finances of the

United States, published in November, 1796, said: Themost generally received opinion, however, is that, bydirect taxes in the constitution, those are meant whichare raised on the capital or revenue of the people; ...

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...He then quotes from Smiths Wealth of Nations andcontinues: The remarkable coincidence of the clause ofthe constitution with this passage in using the word

capitation as a generic expression including thedifferent species of direct taxes-- an acceptation of theword peculiar, it is believed, to Dr. Smi h-- leaves littledoubt that the framers of the one had the other in viewat the time, and that they, as well as he, by directtaxes, meant those paid directly from, and fallingimmediately on, the revenue;...

The Origin of the Tax; Its Character as an Excise; andthe Meaning of Income

The name by which the tax is described in the statu e is, ofcourse, immaterial. Its character must be determined by itsincidents... Dawson v. Kentucky Distillers & Warehouse Co.,

255 U.S. 288 (1921)

The Lincoln administration was aware of all that wehave just discussed when, in 1862, it instituted the income tax

weve since come to know so poorly, but loathe so well. The

Lincoln administration knew the Constitution prohibits

capitations and other direct taxes unless apportioned; it knew a

tax that actually touched upon the all species of revenue

which constitute the broad class of receipts known as income

in the common usage of that word WOULD be a capitation, and

had under various names always been recognized and

designated as a direct tax throughout history; and it also knew

that apportioned direct taxes were really only suited to one-time

debt-retirements and had traditionally been used exclusively for

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that purpose.

One-time debt-retirement was not what the Lincoln

administration needed or wanted. Lincoln was looking to

finance an ongoing war effort, and he needed the kind of taxthat, once instituted, keeps on giving and giving without the

inconveniences of repeated legislation and voting. In short, he

wanted an excise, and thats what he imposed-- an excise on

certain activities, measured by (and typically paid out of) the

revenue they produced.

"...in Springer v. U. S., 102 U.S 586 (1880), it was held

that [the] tax upon gains, profits, and income was anexcise or duty, and not a direct tax, within the meaningof the constitution, and that its imposition was not,therefore unconstitutional." United States SupremeCourt, Pollock v. Farmer's Loan & Trust, 158 U.S. 601,(1895);

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taxation on income was in its nature an excise

entitled to be enforced as such,United States Supreme Court, Brushaber v. Union PacificR. Co., 240 U.S. 1 (1916), quoting and reiteratinglanguage used in its ruling in Pollock v. Farmer's Loanand Trust.

"I hereby certify that the following is a true and faith ulstatement of the gains, profits, or income of _____

_____, of the _____ of _____, in the county of _____,and State of _____, whether derived f om any kind ofproperty, ren s, interest, dividends, salary, or from anyprofession, trade, employment, or vocation, or from anyother source whatever, from the 1st day of January tothe 31st day of December, 1862, both days inclusive,and subject to an income tax under the excise lawsof the United States."

(from the first income tax return form, emphasisadded).

As legislative draftsman for the United States Treasury

Department F. Morse Hubbard put it in no uncertain terms while

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testifying before Congress in 1943:

The income tax... ...is an excise tax with respect tocertain activities and privileges which is measured by

reference to the income [earnings] which theyproduce.House Congressional Record, March 27, 1943, page2580

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Perhaps because the tax can easily be mistaken for a

tax on the revenue itself (due to the fact that the amount ofactivity being taxed is measured by the dollars produced, and

the amount of tax-due is determined by applying the rate of tax

to that amount of dollars), the name income tax

recommended itself to Congress; nonetheless, the tax is not, for

reasons we have observed, any kind of general tax on income

read as all that comes in. Instead, it is a tax on only a

specialized subset of the larger class of income, consistingexclusively of revenues attributable to the voluntary, profitable

use of federal privilege, property or powers-- that is, revenues

in which the federal government has a direct ownership interest,

and to which it can therefore exercise a direct claim as a matter

of right.

(As an aside, it is worth noting that within the realm of

federal privilege, and within the context of the tax, though,income COULD be described as effectively meaning all that

comes in, and sometimes is so described by courts and

government agencies. This is because every activity involving

the use of federal privilege, property or prerogative measurable

by dollars (or dollar-value) produced qualifies as the income

subject to the tax:

(a) GENERAL DEFINITION. Gross income includesgains, profits, and income derived from salaries, wages,or compensation for personal service . . . of wha everkind and in whatever form paid, or from professions,vocations, trades, businesses, commerce, or sales or

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dealings in property, whether real or personal, growingout of the ownership or use of or interes in such

property; also from interest, ren , dividends, securities,or the transaction of any business carried on for gain orprofit, or gains or profits and income derived from anysource whatever. . . . (emphasis added)Commissioner v. Glenshaw Glass Co., 348 U.S. 426(1955)

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So, to the extent that one operates within the federal universe

(so to speak), income DOES mean all that comes in, and

may be described that way within the appropriate context. Butthis doesnt extend the reach of the tax to activities outside of

that universe. Thus, even within that universe and context, the

more accurate and complete definition of the term income is

all that comes in here.)

The language of the original income tax enactment is

helpful in illuminating the true character of the tax and theincome to which it applies:

An Act to p ovide Internal Revenue to support theGovernment and to pay interest on the Public Debt

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Sec. 86. And be it further enacted, That on and afterthe first day of August, eighteen hundred and sixty-two,there shall be levied, collected, and paid on all salariesof officers, or payments to persons in the civil, military,naval or o her employment or service of the UnitedStates, including senators and representatives anddelegates in Congress, when exceeding the rate of sixhundred dollars per annum, a duty of three per centumon the excess above the said six hundred dollars; and itshall be the duty of all paymasters, and all disbursingofficers, under the government of the United States, orin the employ thereof when making any payments to

officers and persons as aforesaid, or upon settling andadjusting the accounts of such officers and persons, todeduct and withhold the aforesaid duty of three percentum, and shall at the same time, make a certificatestating the name of the officer or person from whom

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such deduction was made, and the amount thereof,which shall be transmitted to the office of theCommissioner of Internal Revenue, and entered as partof the internal duties; (Income derived from lessformalized federally-connected activities, such asinvestment in, or contracts with, federal entities is alsotaxed under other provisions in the act.)

It is because the tax confines itself solely to revenue-generating

federal activities as listed in part in this section of law that it is

NOT a capitation-- that is, a tax on revenue generally. This

limited scope also prevents the income tax from amounting toa tax burdening the exercise of individual rights, by the way-- a

transgression which by itself would drop the tax squarely into

the category of direct even without regard to the capitation

issue. As the Supreme Court observes in the case of Knowlton

v. Moore, 178 U.S. 41 (1900), quoting the long-standing official

French tax law definition as being illustrative of the distinctions

drawn in the U. S. Constitution:

Direct taxes bear immedia ely upon persons, upon thepossession and enjoyments of rights;

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Many other rulings make the same, utterly fundamental point,

which is self-evident, in any case. To tax undistinguished

revenue simply as an exercise of power is to tax a persons

exercise of the fundamental individual right to work or trade.The right to follow any of the common occupations oflife is an inalienable rightIt has been well said that the property which every

man has in his own labor, as it is the original foundationof all other property, so it is the most sacred andinviolable. The patrimony of the poor man lies in thestrength and dexterity of his own hands, and to hinder

his employing this strength and dexterity in whatmanner he thinks proper, without injury to his neighbor,is a plain violation of his most sacred property.United States Supreme Court, Butchers Union Co. v.Crescent City Co., 111 U.S. 746 (1883);

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Included in the right of personal liberty and the rightof private property- partaking of the nature of each- isthe right to make con racts for the acquisition of

property. Chief among such contracts is that of personalemployment, by which labor and other services areexchanged for money or other forms of propertyUnited States Supreme Court, Coppage v. Kansas, 236U.S. 1 (1915).

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On the other hand, to tax revenue proceeding from the

voluntary, profitable exercise of the governments own property

or powers (whether directly or by proxy through investment) isto impose an indirect tax having nothing to do with the tax-

payers rights. Instead, such a tax merely involves an

ownership-related claim to a piece of the privileged action.

PRIVILEGE: A particular benefit or advantage enjoyedby a person, company, or class beyond the commonadvantages of others citizens. An exceptional orextraordinary power of exemption A particular right,advantage, exemption power, franchise, or immunityheld by a person or class, not generally possessed byothers. Blacks Law Dictionary, 6th Edition.

...the requirement to pay [excise] taxes involves theexercise of p ivilege United States Supreme Court,Flint vs. Stone Tracy Co. 220 U.S. 107 (1911);

The terms excise tax and privilege tax aresynonymous.The two are often used interchangeably.

American Airways v. Wallace, 57 F.2d 877, 880 (Dist.Ct., M.D. Tenn., 1937)

The 'Government' is an abstrac ion, and its possessionof property largely constructive. Actual possession and

custody of Government property nearly always are insomeone who is not himself the Government but acts inits behalf and for its purposes. He may be an officer, anagent or a contrac or. His personal advantages fromthe relationship by way of salary, profit, or beneficial

personal use of the property may be taxed... United

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States Supreme Court, United States v. County ofAllegheny, 322 US 174 (1944)

Its confinement to activities distinguished by privilege-

dependence is what keeps the income tax from crossing the

line into being both a capitation and a burden on the exercise of

natural rights.

For the sake of clearing away possible cognitive

stumbling blocks it is necessary to point out that while the realm

in which the tax operates is limited, within that realm the tax is

quite comprehensive. As was noted previously, within the

federal universe, EVERY gainful activity qualifies as income-

producing, because every such activity is privileged in the

relevant sense. While working for the Post Office might not

seem like the exercise of a privilege as we are accustomed to

think of that word (as opposed to, say, the privilege involved in

profiting from investment in a railroad running on federally-granted or -subsidized land, or owning or investing in a national

bank or other federal instrumentality), in a legal sense it very

much is. ANYTHING one does that requires the permission of

another is the exercise of a privilege, and can properly be

subject to conditions such as taxes.

In fact, legally speaking, even something as mundane

as being allowed to borrow my lawnmower for use in yourlandscaping business is a privilege-- something to which you

have no inherent right and which I can withhold from you-- or

tax-- at my pleasure. Opening and operating Joes Delivery

Service is a matter of right, and anyone can do it without

anyone elses permission. Working for the United States Post

Office, on the other hand, can only be done with the permission

of the United States. By confining itself exclusively to receipts

proceeding from such voluntarily-engaged-in, but federal-

privilege-dependent activities-- whether those of a federal

worker, investor, office-holder or cash-grant beneficiary-- the

income tax as practiced in America does not cross the line

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from an indirect tax to what would otherwise inescapably be a

direct tax, and one which would require the mechanism of

apportionment in its administration.

It is true that the external appearance of many of theseactivities is indistinguishable from those conducted as matters of

private right. A doctor working for the federal government

practices medicine in the same manner as a doctor in private

enterprise does. A plumber in the civil service uses the same

tools and skills as the one that comes to your home. An

investor buying stock in a national bank or railroad, or other

federal corporation or instrumentality, places those orders with

his broker at the same time that he buys stock in Sears, and his

dividend check may even combine the profits from all of these

investments.

However, the superficial similarity of private and

privileged activities masks a fundamental difference between

them, which is that those in the subset to which the tax applies

are made possible only due to the existence, and with the

cooperation, of the federal government. In a very real and

explicit sense, the aptly-named income tax in this country is,

in fact, a FEDERAL income tax. A detailed, accurate and

comprehensive study of the income tax law-- such as that

presented exclusively in Cracking the Code- The Fascinating

Truth About Taxation In America (CtC)-- makes clear that thisdistinction is thoroughly embedded in that law. In no respect

whatsoever does the federal income tax purport to be anything

but the limited, specialized tax that it must be, or to touch upon

any revenue not distinguished as noted here-- decades of

diligent efforts to obscure that fact in the public mind

notwithstanding.

For instance, a close examination of the currentstatutory structure defining wages-- a term central to the

measurement and reporting of income-taxable activities by

paid-performers-of-services-- illustrates that the tax remains

scrupulously adherent to its proper Constitutional limits. The

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term confines itself to remuneration paid to:

...an officer, employee, or elected official of the UnitedStates, a State*, or any political subdivision thereof, or

the District of Columbia, or any agency orinstrumen ality of any one or more of the foregoing t .

*State, as used in this statute, has its own customdefinition in the law.

This definition also explicitly covers remuneration paid for

service as officers of federal corporations, and implicitly covers

other federal workers/office holders not listed, by virtue of the

includes mechanism discussed briefly below and in detail inCtC. (NOTE: The language presented above is from the general

wage withholding section of the internal revenue laws. The

more narrowly focused FICA income surtaxes are also

measured and reported using the term wages, but deploy a

somewhat more elaborate structure to define the term, which is

also discussed in detail in CtC.) Similarly, the statutory

definition of the conduct of a trade or business, the receipts

from which are to be reported and taxed as income, is:

...the performance of the functions of a public office.

By virtue of the statutory rule of construction concerning

includes-- another custom legal term deployed in the

definitions of both of wages and trade or business, these

terms are amenable to a narrowly limited potential expansion tocover other things of the same class (legal character) as those

already listed, but nothing else.

Includes and including are deployed in a number of

key statutes by which the income tax is laid, and the terms

have been a source of confusion in some quarters, even within

the legal profession. Thus, they merit an extended discussion.

Normally, includes and including are flatly restrictive.

As United States Supreme Court Chief Justice John Marshall

derisively observed when presented with a strained argument to

the contrary in an 1808 case:

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It [is argued that] the word "including" means"moreover", or "as well as"; but if this was the meaningof the legislature, it was a very embar assing mode ofexpressing the idea." United States v. The SchoonerBetsey and Charlotte, 8 U.S. 443 (1808).

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Marshall goes on to declare that the proposition that "moreover"

or "as well as" is, in fact, what is meant by the legislative use of

"including" (or, by extension, includes) is nonsense. The court

re-iterates this rule a century later:

"The [s ate supreme] court also considered that the

word including was used as a word of enlargement, thelearned court being of the opinion that such was itsordinary sense. With this we cannot concur. MontelloSalt Co. v. Utah, 221 U.S. 452 (1911)

In federal tax law, though, includes and including

are permitted a little bit of latitude, being controlled by the

following rule:

Includes and including: The terms ''includes'' and''including'' when used in a definition contained in thistitle shall not be deemed to exclude other thingsotherwise within the meaning of the term defined.Rev. Act of 1938 901(b) (Codified at 26 USC 7701(c).)

The Department of the Treasury has helpfully clarified the

meaning of this provision with the following regulatorylanguage:

The terms includes and including do not excludethings not enumerated which are in the same generalclass; 27 CFR 26.11 and 27 CFR 72.11

The United States Supreme Court has been even more helpful:

[T]he verb "includes" imports a general class, some of

whose particular instances are those specified in thedefinition. This view finds support in 2(b) of the Act,which reads: "The terms 'includes' and 'including,' whenused in a definition contained in this title, shall not bedeemed to exclude other things otherwise within the

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meaning of the term defined. Helvering v Morgans,Inc, 293 U.S. 121, 126 fn. 1 (1934)

The court refers to and re-iterates this observation in Federal

Land Bank of St. Paul v. Bismarck Lumber Co. 314 U.S. 95, 62

S.Ct. 1 U.S. (1941):

[I]ncluding... ...connotes simply an illustrativeapplication of the general principle."

(That is, the enumerated items in a definition in which

including is deployed "illustrate"-- identify, and thus establish--

the contours of the class which the defined term represents--

the "general principle" of its application). In Massachusetts v.

EPA, 549 U.S. 497 (2007), the court re-iterates this doctrine

concerning the meaning of includes and including in a

dissent on other grounds authored by Justice Scalia and joined

by Chief Justice Roberts and Justices Thomas and Alito:

The word including can indeed indicate that whatfollows will be an illustrative sampling of the generalcategory that precedes the word. Federal Land Bank ofSt. Paul v. Bismarck Lumber Co., 314 U.S. 95, 100(1941). (Internal quote marks in the original.)

The reference to the Federal Land Bank ruling, which itself drew

on the Helvering v. Morgan ruling, makes clear that the

circumstances under which the 2007 court recognizes that theuse of including (or includes) indicates that what follows is an

illustrative sampling of a general category being defined is when

their use is under the influence of the language of 26 USC

7701(c).

The principle involved in the includes mechanism is

largely that described by the Supreme Court in Gustafson v.Alloyd Co. (93-404), 513 US 561 (1995):

a word is known by the company it keeps (thedoctrine of noscitur a sociis). This rule we rely upon toavoid ascribing to one wo d a meaning so broad that itr

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is inconsisten with its accompanying words, thus givingunintended breadth to the Acts of Congress.

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The 1stCircuit Court of Appeals puts it this way in Brigham v.

United States, 160 F.3d 759 (1st Cir. 1998):

"[T]he terms 'includes' and 'including' . . . shall not bedeemed to exclude other things otherwise within themeaning of the term defined." 26 U.S C. 7701(c). Inlight of this we apply the principle that a list of termsshould be construed to include by implication thoseadditional terms of like kind and class as the expressly

included terms. *fn2: This follows from the canonnoscitur a sociis, "a word is known by the company itkeeps." Neal v. Clark, 95 U.S. 704, 708-09 (1878).

The principle is clarified by these additional, related rulings:

When a statute includes an explicit definition, we mustfollow that definition, even if it varies from that term'sordinary meaning. Stenberg v. Carhart, 530 U.S. 914

(2000)

It is axiomatic that the statutory defini ion of the termexcludes unstated meanings of that term. Meese v.Keene, 481 U.S. 465 (1987)

Of course, statutory definitions of terms used thereinprevail over colloquial meanings. Fox v. Standard Oil

Co., 294 U.S 87, 95, 55 S.Ct. 333, 336. WesternUnion Telegraph Co. v. Lenroot, 323 U.S. 490 (1945)

These rulings reflect the fact that when a word becomes a

statutorily-defined term, its original meaning is entirely

stripped away and replaced with the new meaning described.

This is why, for instance, the definition of employee at which

we looked earlier explicitly lists federal employees. Despite

being identically spelled and pronounced, the statutorily-

defined-term doesnt mean anyone who works for a boss, or

whatever dictionary definition you might find for the common

word employee; nor does it mean employee as commonly-

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defined plus the additional listed persons or types (by virtue of

which federal employees would have been encompassed

without being listed). When the former understanding and

usage is intended, no statutory definition is provided; and whenthe latter construction is intended qualifying phrases such as,

includes, but is not limited to and including, but not limited

to are deployed, as can be found in dozens of places within

the body of federal tax law.

If a definition IS provided, and includes is used

without additional qualifying language (as in the definition of

employee discussed above) the term only means what the

enumerated list describes-- in this case, persons working for the

federal government or its subordinate entities, under a variety

of different labels and in a variety of different capacities.

Thanks to the limited-expansion rule provided at 7701(c), the

meaning of the defined-term employee can be considered to

cover others not listed who also work for the federal

government or its subordinate entities (and who are thus within

the class established by the existing list), but no one else.

These rules and statutory practices play an important role in

preventing the income tax from functioning as a de facto

capitation or other direct tax.

_____________________________________________

PART TWO

OK, now weve seen that the income tax is, always has been,

and can only be, an exercise-of-privilege-based piece of the

action excise tax on distinguished activity rather than a

capitation, and that income as meant in the context of the tax

refers only to that distinguished activity (the amount of which is

measured by the dollar value it produces).

,

t

Now well look at what the 16th Amendment was all about, and

discover that, rather than institu ing, or authorizing the

income tax, the amendment concerned nothing more than

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closing a loophole opened by a late-nine eenth-century Supreme

Court ruling that briefly impeded the application of the tax to a

particular kind of income, which is distinguished from the

larger subclass of distinguished, revenue-measured taxableactivity by virtue of its connection to personal property.

t

,

The whole body of internal revenue law in effect on January 2,1939... ...has its ultimate origin in 164 separate enactments ofCongress. The earliest of these was approved July 1 1862; the

latest, June 16, 1938."-Preamble to the 1939 Internal Revenue Code

It is clear that were the distinct, limited meaning of the

income subject to the income tax to be eroded away, and

the tax come to be applied to all that comes in, it would be,

and would have to be recognized as, a capitation or other direct

tax. The United States Supreme Court explicitly declares in its

1916 ruling in Brushaber v. Union Pacific R. Co., 240 U.S. 1

(while specifically considering the limited meaning and effect of

the 16th Amendment) that should the tax ever come to exceed

its proper boundaries,

the duty would arise to disregard form [that is, anypretense by which it is made to appear that the tax isbeing confined to its proper limits when it is not, suchas by creatively construing the meaning of income, or

the use of any pretense, scheme or construction bywhich non-specialized revenue or activities are made toappear otherwise so as to be subjected to the tax] andconsider substance alone [that is, what the tax isactually falling upon as a practical reality], and hencesubject the tax to the regulation as to apportionmentwhich otherwise as an excise would not apply to it.

But, of course, the law behind the tax never hasexceeded those boundaries. This is why the very tax which is

administered today, on the same activities as it is administered

today-- without apportionment, and without any pretense of

relief of the apportionment rule, such as is inaccurately ascribed

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to the 16th Amendment-- could be laid and administered for

decades BEFORE that amendment, and yet be upheld by the

United States Supreme Court.

For example, in Gray v. Darlington, 82 U.S. 63 (1872),the court had occasion to rule on a capital gains application of

the tax, citing the following language from the 1867 statute,

'There shall be levied, collected, and paid annuallyupon the gains, profits, and income of every person, . .. whether derived from any kind of property, ren s,interest, dividends, or salaries, or from any profession,trade, employment, or vocation, . . . o from any o hersource whatever, . . . a tax of five per centum on theamount so derived over $ 1000 . . .. And the tax herein

provided for shall be assessed, collected, and paid uponthe gains, profits, and income for the year ending the31st of December next preceding the time for levying,collecting, and paying said tax.'

t

r t

,

tt

t

t

The court finds no issue with the tax generally, but merely holds

that,

The rule adopted by the officers of the revenue in thepresent case would justify them in treating as gains ofone year the increase in the value of property extendingthrough any number of years, through even the entirecentury. The actual advance in value of property overits cost may in fact, reach its height years before its

sale; the value of the property may, in truth, be less atthe time of the sale than at any previous period in tenyears, yet, if the amoun received exceed the actualcost of the property, he excess is to be treated,according to their views, as gains of the owner for theyear in which the sale takes place. We are satisfied thatno such result was intended by the statute.

Again, in Springer v. U. S., 102 U.S. 586 (1880), a test

case of which the Supreme Court declares that:

The cen ral and controlling question in this case iswhether the tax which was levied on the income, gains,and profits of the plaintiff in error, as set for h in therecord, and by pretended virtue of the acts of Congress

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and parts of acts therein mentioned [the act of June30, 1864, as amended by the act of March 3, 1865-- therelevant language of which duplicated that quotedabove in the Gray case], is a direct tax;

and that:

The plaintiff in error advises us by his elaborate brief'that on the trial of the case below the proceedingswere merely formal,' and that 'no arguments or briefswere submitted, and only such proceedings were had aswere necessary to prepare the case for the Supreme

Court';

,

,

t,

the court ultimately concludes (as summarized in a later case)

that,

"[The] tax upon gains profits, and income [is] an exciseor duty, and not a direct tax, within the meaning of theconstitution, and that its imposition [is] not, therefore,unconstitutional." United States Supreme Court, Pollock

v. Farmer's Loan & Trust, 158 U.S. 601, 1895.

In the Pollock ruling itself, the most exhaustive judicial

consideration of the federal taxing power undertaken in

American history (and another ruling preceding the 16th

Amendment), the Supreme Court observes first that when used

in the generic sense of all that comes in, a tax on income is

inherently a direct tax:In England we do not understand that an income taxhas ever been regarded as other than a direct tax. InDowell's History of Taxa ion and Taxes in England,admitted to be the leading authority the evolution oftaxation in that country is given, and an income tax isinvariably classified as a direct tax.

and,At the time the constitution was framed and adopted,under the systems of direct taxation of many of thestates, taxes were laid on incomes from professions,business, or employments...

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The court then proceeds to distinguish the tax laid by the

federal income tax statutes as being only on a special class of

receipts amenable to taxation by excise (that is, the class we

have been referring to as income):We have considered the act only in respect of the taxon income derived from real estate, and from invested

personal property, and have not commented on somuch of i as bears on gains or profits from business

privileges, or employments, in view of the instances inwhich taxation on business, privileges, or employmentshas assumed the guise of an excise tax and been

sustained as such. (Emphasis added)

t ,

,

,

(Remember, as noted in the Brushaber decision, a tax does not

qualify as an excise because the government chooses to call it

one [form], but because its character-- both as to object and

application-- is, in every particular, such a tax [substance].)

The court goes on to point out that this excise on income is, in

fact, what is taxed as such under the federal income taxstructure:

If [the portion of the 1894 Revenue Act laying the taxon income from real estate] be stricken out, and alsothe income from all invested personal property, bonds,stocks, investments of all kinds, it is obvious that by farthe largest part of the anticipated revenue would beeliminated, and this would leave the burden of thetax to be borne by professions, trades,employments, or vocations; and in that way whatwas intended as a tax on capital would remain, insubstance a tax on occupations and labor. We cannotbelieve that such was the intention of congress. We donot mean to say that an act laying by apportionment adirect tax on all real estate and personal property, orthe income thereof might not also lay excise taxes on

business, privileges, employments, and vocations. Butthis is not such an act [because the real estate and

personal property exactions were not, in fact, laid byapportionment in the act], and the scheme must beconsidered as a whole. (Emphasis added)

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The continued strict and scrupulous adherence of the

income tax to the same proper and necessary boundaries by

which it has been confined since its inception in 1862 is why the

Supreme Court is able to repeatedly declare over the yearsSINCE the 16th Amendment that the amendment did not create

a new tax:

"The provisions of the Sixteenth Amendment conferredno new power of taxation... Stanton v. Baltic MiningCo., 240 U.S. 103 (1916);

did not extend the tax to anything it had not embraced before:

The Sixteenth Amendment, although referred to inargument, has no real bearing and may be put out ofview. As pointed out in recent decisions, it does notextend the taxing power to new or excepted subjects...Peck v. Lowe, 247 U.S. 165 (1918);

did not create authority for some hybrid tax which could fall

upon any traditional or inherent object of a direct tax (such as ageneral income tax) but which was now simply not subject to

the rule of apportionment:

"We are of opinion, however, that the confusion is notinherent, but rather arises from the conclusion that the16th Amendment provides for a hitherto unknown

power of taxation; that is, a power to levy an incometax which, although direct, should not be subject to the

regulation of apportionment applicable to all other directtaxes. And the far-reaching effect of this erroneousassumption will be made clear by gene alizing the manycontentions advanced in argument to support i ...Brushaber v. Union Pacific R. Co., 240 U.S. 1 (1916);

rt

and cannot be otherwise construed, since to do so would cause:

...one provision of the Constitution [to] destroy

another; that is, [it] would result in bringing theprovisions of the Amendment [supposedly] exempting adirect tax from apportionment into irreconcilable conflictwith the general requirement that all direct taxes beapportioned." Id;

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and yet continue to find the unapportioned income tax

Constitutional. The tax didnt need any of these changes in

order to be Constitutional, because it didnt become anything it

hadnt previously been upon the advent of the 16thAmendment. It still is not, and cannot be, a tax on

undistinguished, unspecialized activities (or the revenue

produced thereby).

This point bears repeating, due to the pervasiveness of

tax-agency-cultivated misunderstanding about the 16th

Amendment: All these observations by the Supreme Court aresimultaneously true and in harmony with each other because

the limited nature of the tax has never changed, the 16th

Amendment notwithstanding; in fact, these observations CAN

ONLY be simultaneously true and in harmony with each other

because the limited nature of the tax has never changed:

[T]he settled doctrine is that the Sixteenth Amendment

confers no power upon Congress to define and tax asincome without apportionment something whichtheretofore could not have been properly regarded asincome. Taft v. Bowers, 278 US 470, 481 (1929)(Emphasis added.)

In 1988, in South Carolina v. Baker, 485 U.S. 505, the

Supreme Court revisits the subject and observes that,

"The legislative history merely shows. . tha the solepurpose of the Sixteenth Amendment was to removethe appor ionment requirement for whichever incomeswere otherwise taxable

.. .. t

t. (Emphasis added.)

The court is (again) recognizing that the 16th Amendment

operates only on those incomes which already were, and

always have been, inherently taxable under the income excise,and which had been so taxable-- without apportionment--

BEFORE the 16th amendment, until the application of the tax in

certain cases was briefly thwarted by the Pollock loophole in

1895. Howard M. Zaritsky, Legislative Attorney of the American

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Law Division of the Library of Congress, helpfully summarizes all

of this in his 1979 Report N0. 80-19A entitled Some

Constitutional Questions Regarding The Federal Income Tax

Laws:"The Supreme Court, in a decision written by ChiefJustice White first noted that the Sixteenth Amendmendid not authorize any new type of tax, nor did it repealor revoke the tax clauses of Article I of the Constitution,quo ed above Direct taxes were notwithstanding headvent of the Sixteenth Amendment, still subject to therule of apportionment"

, t

t . , t

***

So, what exactly DID the 16th Amendment do? It

simply closed a loophole introduced into the administration of

the federal income tax by the Supreme Court in its ruling

regarding the taxation of income from invested personal

property in the case of Pollock v. Farmers Loan & Trust

discussed above.

The Pollock ruling held that the application of the tax to

the proceeds of investments and real estate leases functioned

as a property tax rather than a federal income tax. The

reasoning was that to tax such gains-- even when the

investments and leases were in, or to, federal entities, as was

involved in the case-- is to effectively tax the stock and land

itself. Since both are personal property, such a tax was really a

property tax and not, in this respect, an excise which could be

applied without apportionment. With this ruling the court struck

down ten sections of the recently reactivated federal income

tax, which had been dormant since its last two-year

implementation had expired in 1873.The effect of this reasoning was to relieve the Robber-

Baron class, which was heavily invested in money-making

federal instrumentalities such as national banks and railroads

and had numerous sweet-heart deals leasing property to the

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feds, from the burden of the tax. This didnt sit well with the

growing and reactionary populist movement, which had little

patience with the idea that a cadre of coupon-clipping fat cats--

widely, and accurately, perceived as pulling Washingtons stringsand benefiting handsomely thereby-- should escape the tax,

while revenue tariffs, by which even the poorest Americans

were affected, stood relatively high in order to make up the

loss.

The populists demanded an amendment to the

Constitution to close the loophole, and eventually succeeded

with the 16th Amendment, which declares that what is

otherwise inherently taxable under the federal income tax

cannot be shielded therefrom by a resort to the source of the

revenue involved. Treasury Department legislative draftsman F.

Morse Hubbard usefully summarizes this sole and exclusive

effect of the amendment in his 1943 testimony:

"[T]he amendment made it possible to bring investmentincome within the scope of the general income-tax law,but did not change the character of the tax. It is stillfundamentally an excise or duty with respect to the

privilege of carrying on any activity or owning anyproperty which produces income." (that is, incomeotherwise taxable, as the Supreme Court reminds ussome four-and-a-half decades later in the SouthCarolina v. Baker decision...)

Remember, as soon as Lincolns 1862 act was passed,

income acquired a fixed, limited and specialized definition for

purposes of federal tax law (without which it would have been

ruled unconstitutional for lack of apportionment in several cases

arising before Pollock). Thus:

The 1894 act that Pollock challenged only sought to tax

income so defined.

The Supreme Court ruling in that case only addressed

the application of the tax to income so defined.

The 16th Amendment only removed the apportionment

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requirement to income so defined-- and only that part

of it comprising gains from invested personal property

and real estate, because it was only that form of

income that the Pollock court had concluded couldntbe taxed other than by apportionment. All other forms

of income have always been able to be taxed without

apportionment, because of the particular legal character

of the receipts which qualify for the tax and which were

(and are) the only variety which the tax attempts to

reach.

That is why the court can say that direct taxes remain subject to

the rule of apportionment even after the amendment; that the

provisions of the amendment conferred no new power of

taxation; that the amendment does not extend the taxing power

to new or excepted subjects; that the sole purpose of the

amendment was to remove the apportionment requirement for

whichever incomes were otherwise taxable; and that the

income tax remains Constitutional even though capitations still

require apportionment.

(A few lower courts have made confusing-- or confused-

- declarations over the years to the effect that the 16th

Amendment authorized a direct tax without apportionment.

What they mean is that in the context of the Pollock courts

reasoning, the amendment removed the apportionmentrequirement from what is really a property-- and therefore

inherently direct-- tax, because thats what the Pollock court

saw the tax on dividends to be.

However, since the property tax involved only applies

to gains which otherwise qualify as income by virtue of their

federal connections, such declarations are misleading when

offered without context. Property which is taxable directlyunder the new protocol is not just any property, but only that

producing benefits from a voluntarily-undertaken federal

linkage. Thats why we dont all get federal property-tax bills

every year. In reality, the 16th Amendment resulted in an

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unapportioned direct tax only on receipts which are within the

class of those IN-directly taxed.)

_____________________________________________

PART THREE

Were going o conclude this introduction to the truth about the

income tax with a look at how general American understanding

of all of the foregoing was lost over the course of the twentieth

century, but also at how the means of individually correcting

misapplications of the income tax are inherent within the very

structure of the tax itself...

t

So how did all of this slip away from the American

consciousness? Slowly, for one thing. At no time prior to 1942,

eight decades after the federal income tax was first introduced,

did more than 8% of American households ever file federal

income tax returns in any given year. In most of those years,

the percentage was far lower than even that small figure. Asrecently as 1936, only 3.9% of the entire American population

filed returns, according to the Treasury Departments Division of

Tax Research (Division Staff Memo: Collection at Source of the

Individual Normal Income Tax, 9 January, 1941).

Nonetheless, by 1943, thanks to the distractions of a

world war, the exhortations of Donald Duck ( see

www.losthorizons.com/NewSpiritExcerpt.wmv and ask yourself:

how many MANDATORY obligations must be sold to the public

by cartoon animals?), and the adoption of a vague and

confusingly-worded temporary measure called The Victory

Tax, the percentage of households sending in payments

declared to be of income taxes rose to 38. That same year,

the Treasury Department introduced its masterwork: The

Current Tax Payment Act of 1943, by which the practice of

withholding tax deposits from wages, which had been a

feature of the very first federal income tax acts but had been

abandoned early in the 20th Century, was re-introduced. The

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new version was a rare work of lawyerly art, and contributed

enormously to the ongoing erosion of general understanding of

the nature of the tax-- already well advanced at that point,

thanks to the extended passage of time since the initial adoptionof the vast bulk of the relevant law. In short, the understanding

of the limits of the federal income tax also slipped away from

American consciousness organically.

We have suffered heavily for our carelessness ever

since, to the tune of trillions of dollars of wealth improperly

extracted from us over the years. The fact that the tax is

limited as it is, and doesn't actually apply to most receipts,

doesn't mean that it does not, or cannot, affect most

Americans. In fact, there is an elaborate bureaucratic and legal

structure in place which inadvertently leads to the application of

the tax outside its proper scope, by encouraging everyone

making payments to others to substantively allege that the

payments were connected with the conduct of a taxable activity,

whether this is actually true or not.

By way of this structure, most UN-taxable receipts

become presumptively taxable in the eyes of the law, and the

recipients become presumptively required to file a tax return

and pay a resulting tax. Of course, false presumptions can be

corrected, and in this case, a quirky idiosyncrasy of the relevant

law provides that the means by which an inaccuratepresumptive transformation of untaxable receipts into taxable

receipts is corrected itself involves the filing of a tax return.

Although this appears strange-- even contradictory-- at

first glance, it really is not. Every legal action involves an

allegation and an answer. The only way to prove that there is

nothing to be answered for is by the making of the answer--

however much that dynamic has the character of a "Catch-22".There is simply no other way for the law to work, since to make

no rebuttal in the face of an allegation is to admit to what is

alleged, by default. So, Congress, recognizing the need, has

specified that the making of the same type of tax return used to

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acknowledge the receipt of income when, and to the degree

that, allegations to that effect are true is also the formal means

of rebutting such allegations when they are not:

And be it fur her enacted that any party, in his or herown behalf,shall be permitted to declare, under oathor affirmation, the form and manner of which shall be

prescribed by the Commissioner of Internal Revenue,......the amount of his or her annual income, liable to beassessed, and the same so declared shall be receivedas the sum upon which duties are to be assessed andcollected. Section 93 of The Revenue Act of 1862.

t ,

Knowing how these allegations are made, the details of

the related provisions and specifications made by Congress, and

the underlying principles of law involved in properly answering

them requires a careful and thorough reading of Cracking the

Code- The Fascinating Truth About Taxation In America.

However, a general sense of these things, and of the manner in

which the exploitive and obnoxious structure needing to be pro-actively addressed each year by most Americans came to be,

can be had by reading the little parable in the following chapter.

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from


Critical Inquiries for a New American Century

by

Peter E. Hendrickson

Bobs Bicycles

or

Getting Free Of The "Income" Tax Scheme Is As Easy As

Falling Off A Bike

To get an idea of how today's "income" tax scheme

works, try this little exercise:

Keeping in mind the Constitutional limitations on the

federal taxing power that weve just discussed in the last

chapter, think of the federal government like a guy named Bob,who lives down the street from you in a town that is really big

on bicycles. Bikes get used for commuting, deliveries, shopping,

etc.. In fact, other than walking, bicycles are the exclusive form

of transportation in your town.

Your neighbor Bob has a by-the-mile bicycle-renting

business-- "Bob's Bicycles". Bob's Bicycles is far and away the

biggest business in town.

Part of Bobs success is because he does a lot of

contract business. However, Bob doesn't just get paid by riders

who have signed an agreement with him, or even just those

using Bob's bikes. Bob gets something every time anybody in

50
http://www.losthorizons.com/WGRAM.htmhttp://www.losthorizons.com/WGRAM.htmhttp://www.losthorizons.com/WGRAM.htmhttp://www.losthorizons.com/WGRAM.htm

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Bobs Bicycles

town does any riding at all, through an odd combination of

circumstances that took many years to come together.

Here's how it happened...

Bob's Bicycles was launched long ago by the great

grandfather of the present Bob (Bob IV). Great Grandpa Bob

started out not only with a main location for his contract

business-- he also had the bright idea of setting up spots

around town where he parked some of his bikes for use by the

more occasional rider, on an "honor system". Anyone could

take and use one of these bikes, but they were expected to

keep track of their mileage, and send Bob a "1040 Mileage

Ridden/Rent Due Form" (and the appropriate rent),

periodically. The initial design of the form was like this:

I, ___________, rode a Bob's Bicycle a total of

_____ miles this year.

At Bob's rental rate of $.15 per mile, I owe Bob

$_____

I said that Great Grandpa Bob planned to deal with

these occasional riders on the "honor system", and that's true.

But he liked his money, too, and didn't want to miss anything

that was due him. So, after setting up the "self-serve"

locations, Great Grandpa Bob went around handing out "W-2,

1099 or K-1 Rider Reporting Forms" to every other business in

town. The forms-- accompanied by notices that if Bob didn't get

his rent from someone riding a bicycle in connection with any

business, he would sue the company involved-- said:

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I, _______

, saw _______ riding a bicycle

from _______ to _______ on __/__/__

I swear this to be true to the best of my

knowledge and belief under penalties of perjury,

_________________ __/__/__

***

To begin with, everybody understood that where it says

"bicycle" on one of Bob's "W-2, 1099 or K-1 Rider Reporting

Forms" or notices, it means "one of Bob's bicycles". For one

thing, this was obvious. After all, what legitimate interest would

Bob have in getting a report about someone riding a bike that

wasn't his?

Indeed, what business would Bob have even askingfora report about someone riding a non-Bob's Bicycle? Everyone

understood, and besides, on the back of the form, anyone who

looked would find, "When used on one of Bob's forms or

notices, "bicycle" means "one of Bob's bicycles"". So, these

forms worked well enough, to begin with. Everyone

understood what they were for, and Bob's "honor system"

bicycles were all painted bright red, so mistakes were few.Some mistakes DID happen though. So, Great Grandpa

Bob provided that the same reporting process used to admit

riding a "Bob's Bicycle" on the honor system would serve to

correct any errors. All that a victim of an erroneous "W-2, 1099

or K-1 Rider Reporting Form" needed to do was fill out one of

the "1040 Mileage Ridden/Rent Due" forms-- which could be

conveniently found at the "Bob's Bicycles" locations all overtown-- declaring the truth of the matter (with a specific rebuttal

or correction of the erroneous W-2, 1099 or K-1 Rider

Reporting Form assertions attached).

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Bobs Bicycles

This might mean reporting that they had ridden '0' miles

on one of Bob's bikes that year. Or it might mean

acknowledging that they DID ride one of Bob's bikes for a

certain number of miles, just not the number reported on theerroneous "W-2, 1099 or K-1 Rider Reporting Form". This

particular use of the "1040 Mileage Ridden/Rent Due" form led

to a little change in its design. Now it looked like this:

I, ___________, rode a Bob's Bicycle a total of_____ miles this year.

Since Bob's rental rate is $ 15 per mile, I owe Bob.

$_____

Under penalties of perjury, I declare the foregoing

to be true, complete and correct to the best of myknowledge and belief,

___________ __/__/__

(Great Grandpa Bob was a nice guy, and he was comfortable

with his "honor system". But Great Grandpa Bob wasn't born

yesterday.)

Over the years, things got a bit more complicated, just

by an unfortunate coincidence of several misunderstandings.

For one thing, Bob Jr. stopped personally distributing the "W-2,

1099 or K-1 Rider Reporting Forms", and hired a company to

take care of this for him. Now, folks who had never even met

Bob, and didn't know anything about him or his business,

started getting "W-2, 1099 or K-1 Rider Reporting Forms" in the

mail.

Along with the forms came prominent instructions

advising the recipient to, "Use this form to report the use of a

bicycle by any person". The note that, "When used on one of

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Bob's forms or notices, "bicycle" means "one of Bob's bicycles"",

got reworded into more complex 'legalese', and buried in a

whole lot of new fine print on the back of the form.

Later, that clarifying note moved off the form entirely--

first being replaced by a cryptic reference to where the

definition might be found in the "Bicycle Forms, Publications and

Policies Guide" (conveniently available at each "Bob's" location

around town), and then ultimately being dropped altogether

under the principle that knowing what the forms are for is the

responsibility of the person filling one out. Unsurprisingly, a lot

of folks misunderstood, and began filling out and sending these

reports to the address provided every time they saw anyone

riding ANY bicycle.

Another thing contributing to complications with Great

Grandpa Bob's program was Bob Jr's decision to stop painting

his "honor system" bikes bright red. Pretty soon, even folks

who remembered that "W-2, 1099 or K-1 Rider Reporting

Forms" only related to Bob's bicycles were filling them out

anytime they saw anyone riding a bike. This was only partly out

of confusion.

"Bob's" had become a very successful business over the

years, and was an important customer to every other companyin town. People were eager to please Bob, and keep in his good

graces; furthermore, although the fine print on the "W-2, 1099

or K-1 Rider Reporting Forms" had changed, those notices about

Bob suing for his money hadn't. Bob maintained a really active

PR department, and was well thought-of in the community in

general, but he also had the most aggressive collections and

legal operations in town. What with the subject of a reporthaving a simple means of correcting any error, and in light of

these other considerations, the simplest and safest course was

just to fill out a report whenever anyone was seen on any bike.

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Bobs Bicycles

It wasn't long before the town's kids were growing up

with the impression that Bob had some kind of legal interest in

bicycle usage in general. After all, once they got jobs, the

company they worked for would automatically fill out a "W-2,1099 or K-1 Rider Reporting Form" and send it to Bob, even

when the kids rode their own bikes. If the rider didn't then

send in the rent, Bob's collection agency would be all over them

like ugly on an ape, with no questions asked.

By the time the grandkids of the first "Bob's Bicycles"

customers were coming up, everyone had heard stories about

riders who, having not paid Bob, were hauled into court and

accused of "bicycle rent evasion". All that ever was alleged in

these cases was that the accused rode a bicycle, and hadn't

paid Bob. It appeared that if just these things alone were

proven, dire consequences followed.

Bob, it seemed, could charge you rent for using your

own stuff, and the legal system would back him up! By then it

didn't occur to anyone-- including the defendants in these

affairs-- that when used in a Bob's-bicycles-related legal action

"bicycle" doesn't mean "any bicycle", but only means "one of

Bob's bicycles", just as it does on a "W-2, 1099 or K-1 Rider

Reporting Form". After all, by then almost no one alive could

remember back to the beginning. By then, almost no one alive

had ever read through Bob's "Bicycle Forms, Publications andPolicies Guide", which had grown over the years to thousands

and thousands of pages in length.

Further, by then Bob's Bicycles was so big, and so rich,

and so diversified, that Bob III had a hand in everything that

went on in town, and knew just how to spread all that rent

money around. He had no trouble securing the support of the

town fathers and other important and influential folks, andthose movers and shakers-- just as ignorant of the truth as

anyone else-- were happy to help Bob's PR department

encourage everyone to just "pay their rent" without question.

Paying rent to Bob became something to be done not only

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unselfishly, but with pride. Paying rent to Bob was good for the

community!

Over the years, every "Bob" has carefully kept the

overall rent-burden tolerable. The nominal rates have oftenbeen high, but a big list of discounts and credits has grown in

pace with the misunderstanding about who really owes rent to

Bob.

When everyone had understood, and all the business

done with Bob was knowingly voluntary, one simple rental rate

was enough, and no elaborate discounting was needed. But as

more and more people found themselves seemingly beholden to

Bob, he realized that if he tried to take the same rate from the

less-well-off that he could get away with from the well-to-do,

somebody-- faced with a bill they couldn't handle-- might just

start actually reading his "Bicycle Forms, Publications and

Policies Guide", however difficult that had been made. Then the

good thing Bob has grown accustomed to might fall apart. So,

Bob's rental rates have grown increasingly "progressive". Bob,

no dummy, is content to sacrifice on margin and make it up in

volume.

In his best move ever, Bob instituted a "payroll

deduction" program, under which the townsfolk are encouraged

to anticipate how much riding they're going to do over the year,

and then have part of their pay sent to Bob each week againstthe annual rent bill they figure will result. By virtue of this

program, most folks never even really notice how much they're

sending to Bob! (Bob is still chortling over this one, decades

after thinking it up...)

Needless to say, Bob's "1040 Mileage Ridden/Rent Due"

forms have gotten rather complicated. But whole industries

have sprung up in town just to help people fill them out (for afee, of course). The average person doesn't directly deal with

paying Bob at all, anymore-- in fact, most get a "refund" from

Bob each year, of what had been "over-deducted" under the

"payroll deduction" program, and view it like a birthday

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Bobs Bicycles

present. All-in-all, Bob has succeeded in creating the "perfect

storm" of misunderstanding.

Well, that's the story of Bob's Bicycles. Today,

everyone in town plans all their affairs with Bob's piece-of-the-action factored in. Indeed, big chunks of the population do

nothing but handle Bob's Bicycle-related activities. Most of the

rest can't imagine a time without the business Bob does with

their own businesses, or the charitable "giving-back-to-the-

community" grants Bob makes out of the rent money he

collects.

Great Grandpa Bob rests; probably with a smile on his

face, 'cause the kids are doing all right. And deep within Bob's

"Bicycle Forms, Publications and Policies Guide", the long-

forgotten truth rests, too-- waiting for anyone wholl bother to

take it out for a spin.

So, How About You?

Who Gave You YOUR Wheels?

*****

Finally,

Complete your introduction to the truth about the income tax

by viewing the short film youll find at

'It's Time To Learn The Truth About The Income Tax'(www.losthorizons.com/ItsTimeToLearnTheTruth.wmv)

"Although all men are born free, slavery has been the generallot of the human race. Ignorant--they have been cheated;

asleep--they have been surprised; divided--the yoke has been

forced upon them. But what is the lesson?the people ought tobe enlightened, to be awakened, to be united, that af er

establishing a government they should watch over it....It isuniversally admitted that a well-instructed people alone can be

permanently f ee "

t

r
http://www.losthorizons.com/It'sTimeToLearnTheTruth.wmvhttp://www.losthorizons.com/It'sTimeToLearnTheTruth.wmvhttp://www.losthorizons.com/It'sTimeToLearnTheTruth.wmvhttp://www.losthorizons.com/It'sTimeToLearnTheTruth.wmv

Documents

CtC Intro